Advances in IT Labor Force Training Fails to Halt Drop in US Productivity

Despite technical advances and a more skilled IT labor force, productivity in the US since the early 2000s has decreased sharply. The specifics of why this has occurred have been outlined in a new research offering written by Gregory Daco, Head of US Macroeconomics, at Oxford Economics.

Among his findings on the decline of US productivity:

- Despite the recent raft of technological advances which should have improved corporate efficiency, and despite an increasingly skilled labor force, US productivity growth has slowed sharply since the early 2000s: a paradox.

- While roughly 20% of the productivity slowdown can be attributed to measurement issues, the remaining 80% is “real”.

- The slowdown can be attributed to a mixture of cyclical and structural factors. The highly cyclical nature of productivity will lead to some recovery in productivity growth in the coming quarters as employment gains slow in a maturing labor market.

- Structurally, weak demand, a lack of focus on intangible investment, poor diffusion of innovations and skills mismatch are important factors behind the productivity sluggishness.

- Looking across the sectors, average productivity growth in the services sector has been lower than in the manufacturing sector although top-performing services-sector firms outperform their manufacturing peers.

- Overall, since many of the productivity headwinds have a structural root, Oxford Economics recommends structural reforms to avoid remaining trapped in a low-growth, low productivity trap.

- None of these factors are irreversible and an adequate mix of pro-growth policies, increased labor and product market flexibility and promotion of trade and investment flows would prevent these structural headwinds from becoming permanent.

Daco commented, "A large part of the ongoing productivity slowdown is real with structural root. Encouragingly, none of these factors are irreversible and an adequate mix of pro-growth policies, increased labor and product market flexibility and promotion of trade and investment flows should prevent these structural headwinds from becoming permanent. More specifically, we recommend reducing barriers to entry in product markets to promote competition, innovation and diffusion thereof."

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